AAII Sentiment Survey: Optimism Rebounds Strongly

Optimism among individual investors about the short-term direction of stocks rebounded strongly in the latest AAII Sentiment Survey. The rise followed two consecutive weeks of extraordinarily low levels of bullish sentiment. At the same time, neutral sentiment plunged after having reached a 26-year high last week.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 12.4 percentage points to 30.2%. Though a six-week high, optimism is only at the lower end of its typical historical range. Furthermore, bullish sentiment remains below its historical average of 38.5% for the 30th consecutive week and the 63rd out of the past 65 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 12.1 percentage points to 40.8%. Even with the significant drop, neutral sentiment remains at an unusually high level. This is the 12th consecutive weekly reading above 40% and the 18th consecutive week that neutral sentiment has been above its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.3 percentage points to 29.1%. Pessimism is below its historical average of 30.5% for the 12th time in the past 14 weeks.

As noted above, this week’s big change in bullish and neutral sentiment follow what had been extraordinarily low and high, respectively, readings for both measures. Even with the big changes, optimism remains low and neutral sentiment remains high. Pessimism is close to, though technically below, its average.

Giving individual investors cause for concern is the slow pace of U.S. economic growth and uncertain pace of global economic growth, terrorism and global unrest, lackluster corporate earnings, the prevailing level of valuations, the forthcoming election and monetary policy. Some AAII members, however, are encouraged by sustained domestic economic growth, corporate earnings and still comparatively low energy prices.

This week’s AAII Sentiment Survey results:

Bullish: 30.2%, up 12.4 percentage points

Neutral: 40.8%, down 12.1 percentage points

Bearish: 29.1%, down 0.3 percentage points

Historical averages:

Bullish: 38.5%

Neutral: 31.0%

Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.).